Basel II Pillar 3 Capital Adequacy and Risk Disclosures Happy Banking an initiative from Bankwest Quarterly Update as at 30 September 2011 Bank of Western Australia Ltd ACN 050 494 454 BWE-1084 200411
Basel II Pillar 3 Capital Adequacy and Risk Disclosures Quarterly update as at 30 September 2011 Scope of Application The Bank of Western Australia Ltd ( the Bank ) is an Authorised Deposit-taking Institution subject to regulation by the Australian Prudential Regulation Authority ( APRA ) under the authority of the Banking Act 1959 and is a 100% owned subsidiary of the Commonwealth Bank of Australia. The Bank s capital adequacy and risk disclosure has been prepared in accordance with APRA Prudential Standard APS 330 Capital Adequacy: Public Disclosures of Prudential Information which requires the Bank to report its quarterly assessment of capital adequacy on a Level 2 basis. This document is unaudited, however, it is consistent with information otherwise published or supplied to APRA. 1. Group Capital Ratios APS 330 Table 16e Capital ratios As At 30/09/11 30/06/11 % % Tier One 9. 19 9. 14 Tier Two 3. 79 3. 79 Total Capital 12. 98 12. 93 The Bank maintains a strong capital position. The Tier One and Total Capital ratios as at 30 September 2011 were 9.19% and 12.98% respectively (30 June 2011: 9.14% and 12.93.%). 2. Risk Weighted Assets APS 330 Table 16a to 16d Capital adequacy (risk weighted assets) As At 30/09/11 30/06/11 Change in RWA Asset Category $M $M $M % Credit risk Subject to standardised approach Corporate 12,395 12,493 (98) (0. 8) Sovereign 3 3 - - Bank 1,323 1,288 35 2. 7 Residential mortgage 23,429 22,928 501 2. 2 Other retail 4,255 4,331 (76) (1. 8) Other assets 546 428 118 27. 6 Total RWA subject to standardised approach 41,951 41,471 480 1. 2 Securitisation 34 46 (12) (26. 1) Equity exposures 7 7 - - Total RWA for credit exposures 41,992 41,524 468 1. 1 Traded market risk 17 10 7 70. 0 Operational risk 3,822 3,822 - - Total risk weighted assets 45,831 45,356 475 1. 0 1 Bank of Western Australia Ltd
3. Credit Risk Exposure APS 330 Table 17a Total credit exposure (excluding equities and securitisation) by portfolio type 30 September 2011 Off balance sheet Average On Non- exposure for balance market Market September sheet related related Total quarter (2) Change in exposure for September quarter (3) PortfolioType $M $M $M $M $M $M % Subject to standardised approach Corporate 10,805 1,185 89 12,079 12,106 (53) (0. 4) Sovereign 1,915 1-1,916 1,880 73 4. 0 Bank 6,236 45 710 6,991 6,881 220 3. 2 Residential mortgage 51,376 553 21 51,950 51,254 1,392 2. 8 Other retail 4,079 128 5 4,212 4,251 (77) (1. 8) Other assets 1,210 - - 1,210 1,008 405 50. 3 Total credit exposures (1) 75,621 1,912 825 78,358 77,380 1,960 2. 6 (1) Total Credit Risk Exposures do not include equities or securitisation exposures. (2) The simple average of balances as at 30 September 2011 and 30 June 2011. (3) Change, as at 30 September 2011, of exposures compared to balances at 30 June 2011. 30 June 2011 Off balance sheet Average On Non- exposure for balance market Market June sheet related related Total quarter (2) Change in exposure for June quarter (3) Portfolio Type $M $M $M $M $M $M % Subject to standardised approach Corporate 10,883 1,196 53 12,132 12,103 58 0. 5 Sovereign 1,842 1-1,843 1,767 153 9. 1 Bank 6,486 45 240 6,771 6,593 357 5. 6 Residential mortgage 50,006 539 13 50,558 49,794 1,529 3. 1 Other retail 4,156 130 3 4,289 4,280 18 0. 4 Other assets 805 - - 805 772 66 8. 9 Total credit exposures (1) 74,178 1,911 309 76,398 75,309 2,181 2. 9 (1) Total Credit Risk Exposures do not include equities or securitisation exposures. (2) The simple average of closing balances as at 30 June 2011 and 31 March 2011. (3) Change, as at 30 June 2011, of exposures compared to balances at 31 March 2011. Basel II Pillar 3 2
4. Past Due and Impaired Exposures, Provisions and Reserves APRA Prudential Standard APS 220 Credit Quality requires the Bank to report specific provisions and a General Reserve for Credit Losses ( GRCL ). All provisions for impairment assessed on an individual basis in accordance with Australian equivalents to International Financial Reporting Standards ( AIFRS ) are classified as specific provisions. Collective provisions raised under AIFRS are classified into either specific provisions or GRCL. Reconciliation of AIFRS and APS220 based credit provisions, and APS 330 Table 17c - General reserve for credit losses 30 September 2011 General reserve for Specific Total credit losses (2) provision (2) provisions $M $M $M Collective provision (1) 823 13 836 Individual provisions (1) - 977 977 Total provisions 823 990 1,813 Additional GRCL requirement (3) 98-98 Total regulatory provisions (2) 921 990 1,911 (1) Provisions according to AIFRS. (2) Provisions classified according to APS 220 Credit Quality. (3) The Bank has recognised an after tax deduction from Tier One Capital of $69 million at 30 September 2011 in order to maintain the required minimum GRCL. 30 June 2011 General reserve for Specific Total credit losses (2) provision (2) provisions $M $M $M Collective provision (1) 858 16 874 Individual provisions (1) - 979 979 Total provisions 858 995 1,853 Additional GRCL requirement (3) 104-104 Total regulatory provisions (2) 962 995 1,957 (1) Provisions as reported in financial statements according to AIFRS. (2) Provisions classified according to APS 220 Credit Quality. (3) The Bank has recognised an after tax deduction from Tier One Capital of $73 million at 30 June 2011 in order to maintain the required minimum GRCL. 3 Bank of Western Australia Ltd
5. Past Due and Impaired Exposures, Provisions and Reserves (continued) Table APS 330 Table 17b Impaired, past due, specific provisions and write-offs charged by portfolio Quarter ended As at 30 September 2011 30 September 2011 Past due Specific Net charges Impaired loans provision for individual Actual assets 90 days balance (1) provisions losses (2) Portfolio $M $M $M $M $M Corporate including SME 1,622 232 930 37 76 Sovereign - - - - - Bank - - - - - Residential Mortgage 98 286 47 3 1 Other retail 3 17 13-12 Total 1,723 535 990 40 89 (1) Specific Provision Balance includes certain AIFRS collective provisions on some past due loans 90 days. (2) Actual losses equal write-offs from individual provisions, write-offs direct from collective provisions less recoveries of amounts previously written off for the quarter ending 30 September 2011. Quarter ended As at 30 June 2011 30 June 2011 Past due Specific Net charges Impaired loans provision for individual Actual assets 90 days balance (1) provisions losses (2) Portfolio $M $M $M $M $M Corporate including SME 1,675 195 933 202 248 Sovereign - - - - - Bank - - - - - Residential Mortgage 95 325 48 17 11 Other retail 3 19 14 3 12 Total 1,773 539 995 222 271 (1) Specific Provision Balance includes certain AIFRS collective provisions on some past due loans 90 days. (2) Actual losses equal write-offs from individual provisions, write-offs direct from collective provisions less recoveries of amounts previously written off for the quarter ending 30 June 2011. Basel II Pillar 3 4
6. Glossary Term ADI AIFRS APRA APS Bank Basel II Collective Provision Corporate General Reserve for Credit Losses Individual Provisions Level 1 Level 2 Other Assets Other Retail Residential Mortgage RWA Securitisation Sovereign Specific Provision Definition Authorised Deposit-taking Institution - includes banks, building societies and credit unions which are authorised by APRA to take deposits from customers. Australian equivalents to International Financial Reporting Standards. Australian Prudential Regulation Authority - the regulator of banks, insurance companies and superannuation funds, credit unions, building societies and friendly societies in Australia. APRA s ADI Prudential Standards. For more information, refer to the APRA web site. APS asset class - includes claims on central banks, international banking agencies, regional development banks, ADI and overseas banks. Refers to the Basel Committee on Banking Supervision s Revised Framework for International Convergence of Capital Measurement and Capital Standards issued in June 2006 and as subsequently amended. All loans and receivables that do not have an individually assessed provision are assessed collectively for impairment. The collective provision is maintained to reduce the carrying value of the portfolio of loans to their estimated recoverable amounts. These provisions are as reported in the Bank s Financial Statements in accordance with AIFRS (AASB 139 Financial Instruments: Recognition and Measurement ). APS asset class includes commercial credit risk where annual revenues exceed $50 million, SME Corporate and SME Retail. APS 220 requires the Group to establish a reserve that covers credit losses prudently estimated, but not certain to arise, over the full life of all individual facilities making up the business of the ADI. Most of the Group s collective provisions are included in the General Reserve for Credit Losses. An excess of required General Reserve for Credit Losses over the Group s collective provisions is recognised as a deduction from Tier One Capital on an after tax basis. Provisions made against individual facilities in the credit-rated managed segment where there is objective evidence of impairment and full recovery of principal and interest is considered doubtful. These provisions are established based primarily on estimates of realisable value of collateral taken. These provisions are as reported in the Group s Financial Statements in accordance with AIFRS (AASB 139 Financial Instruments: Recognition and Measurement ). Also known as individually assessed provisions or IAP. Represents the ADI and each subsidiary of the ADI that has been approved as an extended licence entity by APRA. The level at which the Group reports its capital adequacy to APRA being the consolidated banking group comprising the ADI and all of it s subsidiary entities other than non-consolidated subsidiaries. This is the basis of which this report has been produced. APS asset class includes Cash, Investments in Related Entities, Fixed Assets and Margin Lending. APS asset class includes all retail credit exposures not otherwise classed as a residential mortgage, SME retail or a qualifying revolving retail asset. APS asset class - includes retail and small and medium enterprise exposures up to $1 million that are secured by residential mortgage property. Risk Weighted Assets the value of the Group s on and off-balance sheet assets are adjusted according to risk weights calculated according to various APRA prudential standards. For more information, refer to the APRA web site. APS asset class - includes Group-originated securitised exposures and the provision of facilities to customers in relation to securitisation activities. APS asset class - includes claims on the Reserve Bank of Australia and on Australian and foreign governments. APS 220 requires ADIs to report as specific provisions all provisions for impairment assessed by an ADI on an individual basis in accordance with AIFRS and that portion of provisions assessed on a collective basis which are deemed ineligible to be included in the General Reserve for Credit Losses (which are primarily collective provisions on some defaulted assets). 5 Bank of Western Australia Ltd
6. Glossary (continued) Term Tier One Capital Tier Two Capital Definition Tier One Capital is the highest quality of capital available to the Group and reflects the permanent and unrestricted commitment of funds that are freely available to absorb losses. It comprises: Fundamental Capital (share capital, retained earnings and reserves); Residual Capital (innovative and non innovative); and Prescribed Regulatory deductions. Tier Two Capital represents those capital items that fall short of the necessary conditions to qualify as Tier One Capital. There are two main classes, upper and lower Tier Two. Basel II Pillar 3 6